Rudd unveils $10.4b stimulus plan

By Staff reporters

The Federal Government will pump $10.4 billion into the economy in a bid to prevent Australia sliding into a recession.

Prime Minister Kevin Rudd and Treasurer Wayne Swan unveiled the emergency spending plan, which includes pre-Christmas payments of $4.8 billion for pensioners, $3.9 billion in support for families, and $1.5 billion for first-home buyers - delivering benefits to millions of Australians.

- $4.8b down payment to pensioners, payable in December.- $3.9b in support payments for families. - $1.5b for first home buyers. - $187m to create new training positions - Budget to remain in surplus.

"It's very important to act early and decisively,'' Mr Rudd told a press conference. ''At a time when economies need stimulus support, don't leave it till too late.''

The housing sector is a major beneficiary. The Government will triple to $21,000 the current $7,000 first-home buyers grant for people buying a newly constructed home. Those first-home buyers moving into existing properties will receive a doubling of the allowance to $14,000.

The plan is "designed to support activity in the housing sector and the housing sector is critical to the economy overall," Mr Rudd said.

Opposition Leader Malcolm Turnbull said the Coalition would back the stimulus package.

''It has our bipartisan support,'' Mr Turnbull told a media conference. ''It gives justice to Australia's aged pensioners, in particular, who have been doing it tough.''

'Pretty effective'

"It's a very targeted and timely response," said National Australia Bank economist Jeff Oughton. "It will add half a percentage point to GDP growth (in 2008-09) as the money comes into the accounts of pensioners and families."

David Spry, a research manager at stockbroker FW Holst, said the stimulus package, along with Government plans to speed up spending on major projects, would be positive for the economy.

''These are all positive things. If you've got a surplus there in these times, you've got to try and use it constructively to get the economy moving,'' Spry said. ''All the things Rudd's done have been pretty effective in terms of shoring up a bit of confidence here.''

The package comes just two days after the Government declared it would guarantee all deposits held with Australian financial institutions in a bid to limit the impact on local banks from the widening economic crisis.

"We're in the middle of the worst financial crisis ever to confront the modern market economy", Mr Swan said.

Australian shares surged more 6% in morning trading, the biggest gain in more than two decades, buoyed by record advances on many overseas markets. Wall Street's main indexes added about 12%.

Today's jump - largely maintained after the announcement of the stimulus package - on Australian markets follows a 5.6% rally yesterday that reversed much Friday's 8.2% plunge.

The Reserve Bank last week cut its official interest rate by one full percentage point to 6%, with investors betting the RBA will cut rates by another half percentage point to 5.5% when its board next meets.

The Australian dollar was little changed on the news of today's extra Government spending, trading at about 70.5 US cents.

Pension benefit

The pension and housing assistance contained within the stimulus package will kick in from December 8, Prime Minister Rudd said. The pension aid will assist four million pensioners, carers, and seniors, with single pensioners receiving a lump sum payment of $1,400, while pensioner couples will receive $2,100.

"The Government's long-term aim is to improve the economy's sagging infrastructure, but additional payments directly to families put money in peoples' pockets much more quickly."

People receiving the carers' allowance will also receive $1,000 for each eligible person in their care.

The package would apply to all categories of pensioners and carers and was equivalent to about $35 a week for single pensioners, and $26 a week for each member of a married couple.

Home-buyer aid limits

The first-home buyers scheme will be time limited. All contracts entered into by June 30 next year will be eligible for the new assistance.

The Government will invest about $1.5 billion in the housing market over 2008/09 and 2009/10 through this initiative.

''This measure will provide an immediate stimulus for new housing and help restore business confidence across the sector particularly in the building manufacturing sector,'' said Ron Silberberg, managing director of lobby group, Housing Industry Association.

However, the building of houses needed to be cranked up by 45,000 a year to cover present demand, but this proposal is a step in the right direction, the HIA said in a release.

In its wider support package for families, the Government said about 3.9 million Australian children will receive a $1,000 one-off benefit, also commencing on December 8.

Families who receive Family Tax Benefit (A), families with children who receive the Youth Allowance, Abstudy or a benefit from the Veteran Children's Education scheme will be eligible. Budget impact

The $10.4 billion spending plan will tap into a budget surplus that the Government had forecast would come in at $21.7 billion, prior to the worst of the market turmoil taking hold.

The Government plans to publish a full budget update in the Mid-Year Economic and Fiscal Outlook within a month.

The accelerated spending will serve as "a buffer" against the likely drag on the economy resulting from the global slowdown, Mr Rudd said.

The Government remains determined to take ''whatever action is necessary in the future'' to maintain stability of the Australian financial system and underpin positive economic growth, Mr Rudd said.

Asked about the effect the package would have on inflation, Mr Swan cited the RBA's view that '"inflation will begin to turn down following a peak in December."

"The risk of inflation is now abating,'' Mr Swan said.

''We trust the government took into account'' the impact the extra spending would have on inflation and on the RBA's ability to continue to cutting rates,'' said Opposition Leader Mr Turnbull.

As indicated in recent days, the Government plans to accelerate its so-called nation building efforts to stoke domestic demand, taking up some of the slack as consumers and businesses cut back spending.

Ministers will bring forward their interim infrastructure report so that work can start in 2009 in the key areas of education and research, health and hospitals, and transport and communications, Mr Rudd said today.

The Government will be seeking pre-referral of the legislation for the nation building funds into a Senate committee this week.

As part of today's extra outlays, the Government will spend $187 million to create an extra 56,000 training places this financial year.

The ''productivity places program'' will be doubled from 57,000 to 113,000 places, taking the Government investment in training places since April to more than $400 million, Mr Rudd said.

Emissions trading

The federal government is sticking to its plan to start emissions trading in 2010, despite global financial turmoil.